What the most unequal state taught Alexandria Ocasio-Cortez

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It was the offhand comment heard ’round the world: Asked by Anderson Cooper on “60 Minutes” how she would pay for ambitious proposals such as a Green New Deal, Rep. Alexandria Ocasio-Cortez, the freshman phenom from a Bronx-Queens district, offered higher taxes on the very rich, such as a 60 or 70 percent marginal rate on incomes at $10 million and above. That triggered think tank and op-ed page responses from left and right, local and national, and weeks later it’s still being actively discussed. On Tuesday, CNBC reported from Davos, “The elite financiers attending the World Economic Forum are worried,” about Ocasio-Cortez’s proposal. Ocasio-Cortez hasn’t backed down from the fight, swiftly rebutting misleading arguments from prominent Republicans who appear not to understand that a marginal tax rate kicking in at $10 million does not apply to incomes below that threshold nor to the first $10 million per year that people like Bill Gates and Tom Brady make.

Why, unlike the average young activist promoting investment in renewable energy and Medicare for All, does Ocasio-Cortez want to talk not only about the popular public investments and social safety net expansions but also how to pay for them? Perhaps it’s because she’s from New York and she has seen the downsides of the accumulation of great wealth amid a sea of poverty and stagnant middle-class wages.

Aside from corporate executives, the beneficiaries are the proliferating ranks of ancillary profiteers: lawyers who protect corporations from the claims of mistreated employees or customers, accountants who minimize a firm’s tax liabilities, management consultants who recommend how to wring more productivity from the worker bees, private equity investors who load up firms with debt, lay off employees and walk away with a fat bonus, hedge fund managers who help the rich get richer, and brokers of stocks and securities who are paid to gamble with other people’s money. All of these hangers-on are heavily concentrated in a few metropolitan regions, including Boston, Chicago and San Francisco. But nowhere have they agglomerated in greater number than in New York City and its suburbs.

At the same time, New York has seen its once-mighty manufacturing economy dwindle to a tiny nub. Between 1970 and 2014, New York state lost 75 percent of its manufacturing jobs, the largest share of any Rust Belt state, and the New York City region lost 80 percent of its employment in manufacturing, the worst attrition of any urban area in the state.

New York now has the largest income gap of any state. The New York City area has the second-highest of any metro region in the country, after its neighbor, Bridgeport, Connecticut.

In 2016, according to the Brookings Institution, a household at the 20th percentile in the New York City area had an income of $25,391 per year, while a household at the 95th percentile made $304,292. Notwithstanding all the hype about gentrification, the city is less affluent than the suburbs, especially at the bottom. In New York City proper, which ranks eighth most unequal among inner cities, the 20th-percentile income was $19,144 while the 95th-percentile income is $282,125.

Ocasio-Cortez knows firsthand the inequity between city and suburb. As she recalled on her campaign website, “the state of Bronx public schools in the late ’80s and early ’90s sent her parents on a search for a solution. She ended up attending public school in Yorktown,” which is an upper-middle class town in suburban Westchester County. “The 40-minute drive represented a vastly different quality of available schooling, economic opportunity, and health outcomes,” she wrote.

Contrary to former New York City Mayor Michael Bloomberg’s contention that an influx of billionaires would be “a godsend,” Ocasio-Cortez sees downsides of such extraordinary wealth. As the rich get richer, they have bid up the cost of housing in once-middle-class and working-class neighborhoods to astronomical sums, straining and displacing the existing communities. According to a 2016 study of the 414 most populous counties by real estate data company ATTOM Data Solutions, Brooklyn is the most unaffordable, with Manhattan coming in fourth and Queens in eighth. Unaffordability was determined by the discrepancy between incomes and the cost of housing. As MarketWatch put it, “A person earning the average salary in Brooklyn cannot afford the average home there – even if he or she could spend his entire salary (and then some) on housing.”

Where once New York City was filled with middle-class neighborhoods, it’s now starkly divided between rich and poor. The former have bid up the price of housing in Manhattan astronomically – it is still more expensive than any of the outer boroughs, but it also has higher incomes – and now they are pushing into Brooklyn and Queens and sending prices soaring past the means of longtime residents.

Some critics of Ocasio-Cortez’s proposal argue a very high tax rate would discourage those who make $10 million per year from reaching for their 11th million. What they fail to appreciate is that Ocasio-Cortez and her fans see that as a feature, not a bug. Like a tax on climate pollution or cigarettes, higher taxes on the super-rich is not just a way to raise revenue; it’s a tax on a perceived social ill – in this case inequality – with the explicit purpose of adjusting corporate incentives so that pre-tax income would have a flatter distribution. (And if they forgo that extra million by choosing not to boost their bonus by wringing more savings out of the workforce’s wages, so much the better.)

During the 1950s and 1960s, when the highest income tax bracket ranged from 70 to 92 percent and the U.S. economy grew at a healthier clip than it has ever since, executives were paid substantially less. This didn’t mean they couldn’t afford to live in New York City. It just cost a lot less. Reducing incomes at the very top might help bring New York’s housing costs back to earth and mitigate the inequity between gold-plated suburban school districts and their poorer counterparts. And so, while other liberals might shy away from talking about big tax hikes on top earners, Ocasio-Cortez embraces it.

Besides the drawbacks of huge inequality, Ocasio-Cortez’s hometown also shows that higher taxes don’t necessarily hinder economic growth. As The Atlantic’s Derek Thompson notes, “the two most important hubs of innovation in the United States are the Bay Area and New York City. But according to the Tax Foundation, California and New York have the 48th and the 49th most favorable business-tax climates in the country. Sky-high tax rates in Mountain View and Manhattan haven’t blunted their advantage.”

Why is it that entrepreneurs and companies like Amazon choose regions with high taxes? One reason is that the public services they support provide substantial benefits to corporations and foster economic growth. For example, it is no coincidence that the regions with the strongest economies are often those with the most extensive mass transit systems. There also are productivity benefits to being in a city with a robust social safety net, like how New York City’s universal pre-K reduces stress or time constraints for parents.

The most successful tech companies believe that a healthy, happy and highly educated workforce produce and innovate more, which is why they offer perks like free organic meals and gym memberships. It’s also why they locate in the creative capitals where workers want to live, which often feature many first-rate publicly supported amenities like parks, museums or performing arts centers. According to urban policy experts such as Alan Mallach at the Center for Community Progress, universities and hospitals – two institutions that are usually nonprofits, always publicly subsidized, and often are publicly run – are among the strongest assets that post-industrial cities can have.

So Ocasio-Cortez argues higher taxes to provide free universal health insurance and college tuition would ultimately benefit the economy, even if it means – as Fox News’ Sean Hannity warned – that demand for recreational boats will decline. To many New Yorkers, less opportunity for the rich to indulge themselves would be a good thing.

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As founder and research director of the Empire Center for Public Policy, E.J. McMahon is a go-to expert on budget plans and policy proposals. His organization promotes greater transparency, accountability and fiscal responsibility in state government, which often puts him at odds with lawmakers and the governor. McMahon previously worked as a journalist in Albany, as an Assembly Republican staffer and a budget adviser for almost 30 years, giving him great insight into the goings-on in the Capitol.